8/22/2004

Entrepreneurs looking for capital sometimes turn to likely customers, suppliers or other established companies for investments. VC Mike Docherty suggests here that companies are increasingly interested in making such investments. This post by Steve Bayle, who founded three venture-backed companies, cites these as the pros and cons of such investments:

won't act as lead investor
shallow pockets
potential changes in control
high maintenance
capping your valuation
cutting off your ability to do business with their competitors
VC don't like em

He concludes:
"Like most decisions involved in financing your company, the decision to take corporate money or not is a complicated one, and will vary from company to company. You probably need to do even more due diligence on a corporate investor than on a VC, as you need to really understand their strategic motivations and whether or not their goals are going to be congruent with yours. Also know how deeply into the organization the commitment to you and your company goes. Trees with shallow roots tend to get blown over in strong winds, and rare is the startup that doesn't weather at least one storm. But having corporations interested in investing in you is a good problem to have!"

About Me

I am a strategic business lawyer, deal attorney and professor. I received my B.A. in Economics from Princeton University and my J.D. from the University of Pittsburgh. I am an adjunct faculty member of Chatham University and Strayer University.